Cover Story: Chris Hansen's property play

Though he keeps firing air balls in his quest to land an NBA team for Seattle, the San Francisco hedge fund manager continues amassing property in Sodo for his proposed $490 million sports arena.

Hansen’s real estate adviser confirms that Hansen spent “a substantial amount” this spring on a three-year option to buy five acres just south of the site of the arena where the new Sonics would play.

That’s on top of the nearly $64.7 million Hansen paid to buy more than seven acres for the arena land and surrounding properties.

For now, that leaves Hansen, while still serious about becoming a professional basketball team owner, as Seattle’s latest real estate baron — albeit a well-heeled one who, according to his real estate adviser, Bill Vipond, is making “a bit” of money off his Sodo properties.

The economics of Hansen’s 12-acre holdings in Sodo — how much they’re costing him, how much he’s making off them and how long they can support the wait for his hoop dreams to come true — will likely shape the development of Seattle’s south downtown for decades to come.

A close examination of Hansen’s growing property portfolio shows that his holdings are pivotal to whatever Sodo will become, whether it’s the sports entertainment district that Hansen seeks, the haven for mixed-use midrises envisioned by developers or the gritty, semi-industrial enclave that it is today.

Hansen’s hoop hopes are reminiscent of the dream of a grand park that Microsoft co-founder Paul Allen pursued two decades ago in Seattle. Allen had bought properties to jump start the Seattle Commons, which was going to stretch from downtown to Lake Union. But after city voters twice rejected a property tax levy to fund the commons, Allen’s Vulcan Real Estate launched one of the country’s largest and most successful urban redevelopment projects, which today is home to Amazon.com’s headquarters.

Craig Kinzer, CEO and founder of Seattle-based Kinzer Real Estate Services, said a key difference between Hansen and Allen is that Allen had a fish-or-cut-bait moment, which came when voters said no. By contrast, Hansen has to wait, either to buy a team and move it here or for the NBA to expand.

The last time the league added a team was 12 years ago.

Collecting rent

To assess Hansen’s odds of beating the clock requires a detailed look at his Sodo property holdings.

Even a would-be sports mogul needs to collect rent. Hansen’s properties are around 90 percent leased, Vipond said, though he declined to specify Hansen’s rate of return on the real estate.

“It’s not great,” said Vipond, founder and president of the Vipond Group, a commercial real estate consulting company in Issaquah. “I’d say it mirrors a 10-year Treasury (note),” or about 2.6 percent.

Hansen can be patient, Vipond said, because he paid all cash for the Sodo property. As a result, Vipond added, “we don’t have a bank breathing down our neck.”

Hansen’s latest land deal came about a week after billionaire Steve Ballmer backed away from Hansen’s would-be NBA ownership group. Ballmer struck a $2 billion deal to buy the National Basketball Association’s Clippers and keep that team in Los Angeles.

Hansen issued a statement “assur[ing] Seattle fans that my remaining partners and I remain committed to bringing the NBA back to Seattle,” and told Sports Radio KJR that he envisions taking on multiple investors to fill the hole created by Ballmer’s decision.

While Ballmer is out, the rest of Hansen’s would-be ownership group remains intact. Erik Nordstrom said he and his brother Peter are “absolutely” still part of the organization and added that former Sonic player and team executive Wally Walker also remains in the fold.

The Nordstroms and Walker are merely “local citizens just trying to help,” Erik Nordstrom said.

All along, Hansen has pledged patience and is not interested in switching gears to redevelop his Sodo property into something other than an arena.

It’s all about getting an NBA team, said Vipond, who declined to say exactly how much Hansen spent for the three-year option to buy the five acres south of the arena that likely would be used for parking. But Vipond did say, “It was not like $100,000.”

Cutting into Hansen’s rental cash flow from Showbox Sodo and other tenants is $650,000 a year that Hansen pays in property taxes, plus additional money for insurance, maintenance and repair, security and the other expenses that come with being a landlord.

Public records show that Hansen’s Sodo buildings total around 217,575 square feet. Based on the industry standard of $7 per square foot a year for taxes and other expenses, slightly more than $1.5 million comes out of his gross rental profits.

Then there is what is known as the “opportunity cost.” Kinzer, the Seattle real estate expert, said that’s the nearly $65 million cash that Hansen spent buying the property. Those dollars could be invested elsewhere and return considerably more, especially for a hedge-fund manager like Hansen. That Hansen is willing to take a lower return on real estate, Vipond said, “is quite a commitment” to his basketball quest.

Kinzer said one thing that would offset the lower return is if Hansen’s land is appreciating.

It is. The King County Assessor’s Office now appraises Hansen’s real estate at just over $55 million. In 2011, when he started buying different properties, the county pegged the value of the parcels Hansen ended up with at just over $43.9 million.

“I would certainly say [Hansen’s Sodo property] is a good investment,” Kinzer said.

Real estate development in downtown Seattle is squeezing growth both north and south of the central business district. The arena property is “in the path of progress,” said Smith, who added that he wishes he owned it.

In fact, Smith said that he had tried to buy some Sodo property that Hansen ended up buying.

Given these factors, Kinzer and Smith think Hansen is in a good position to capitalize on his real estate investment, even if he doesn’t land an NBA team.

Smith points to Seattle real estate development company American Life Inc.’s new Sodo developments. Southwest of Safeco Field are American Life’s Home Plate project, a $155 million retail and office complex, and Stadium Innovation Center, a nearly $60 million mixed-use project with retail and light-industrial space.

Kinzer added that successful real estate developments must have commercial, residential and retail components. In Sodo, that’s at odds with the industrial and maritime interests that traditionally have dominated the neighborhood.

However, the plan devised by the Washington state Major League Baseball Public Facilities District, which oversees both Safeco and CenturyLink fields, envisions creating a stadium district on the north edge of Sodo with 2,000 new housing units, hotels, promenades, a streetcar and a major new destination open space.

City officials have temporarily delayed implementation of this plan to seek more community input, said Nathan Torgelson, deputy director of the Seattle Department of Planning and Development.

Hansen is on board with an entertainment district in Sodo. In a 2012 interview with the Business Journal, he said that he would build the district along First Avenue South, between South Massachusetts Street and Edgar Martinez Way South, and that it would resemble the neighborhoods around Chicago’s Wrigley Field and Boston’s Fenway Park.

Hansen, who owns most of the east side of First between Massachusetts Street and Edgar Martinez Way, said he wouldn’t develop the entire district himself but wants to help create it.

“We would be very happy if other people can make some money off of it, too,” Hansen said. “We just want to make sure it’s done right.”

Meanwhile, Hansen waits for the elusive NBA team that he can bring to Seattle. Even though he failed in his 2013 bid to buy and move the Sacramento Kings franchise to Seattle, and even though he no longer has Ballmer’s deep pockets, his eyes are still on that ultimate prize: landing a team and building the arena.